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TIR 98-11: Taxation of Native American Business Activities

This Technical Information Release explains the circumstances under which Native Americans are required to register as sales tax vendors in Massachusetts, collect and remit Massachusetts sales tax, maintain sales tax records, and pay an income tax on the net profit or wages earned from the sale of goods sold outside Indian country. Indian country includes formal and informal reservations, dependent Indian communities, and Indian allotments, whether restricted or held in trust by the United States. See 18 U.S.C. § 1151.

Discussion

Sales Tax. Under G.L. c. 64H, § 1, the term "vendor" includes a retailer or other person selling tangible personal property. No person shall do business in Massachusetts as a vendor unless a registration shall have been issued to him for each place of business in accordance with G.L. c. 62C, §67. G.L. c. 64H, § 7. Each vendor must collect sales tax from the purchaser upon the sale of a taxable item. G.L. c. 64H, § 3. Each vendor must remit the tax collected to the Department of Revenue at the time provided for filing a sales tax return that is required by G.L. c. 62C, § 16. G.L. c. 64H, § 2.

A Constitutional exception to these rules exists for Native American vendors, but only for sales that occur within Indian country to other Native Americans. Thus, sales by Native American vendors to Native Americans within Indian country are exempt from Massachusetts sales tax requirements, but sales to non-Indians within Indian country are subject to Massachusetts sales tax requirements. All sales outside Indian country are subject to Massachusetts sales tax requirements. SeeMescalero Apache Tribe v. Jones, 411 U.S. 145 (1973); Washington v. Confederated Tribes of Colville Reservation, 447 U.S. 134 (1980); Department of Taxation and Finance of New York v. Milhelm Attea & Bros., Inc., 512 U.S. 61 (1994).

Income Tax: Massachusetts residents are required to make returns if their Massachusetts gross income exceeds $8,000. G.L. c. 62C, § 6(a). Massachusetts residents are required to pay tax on their taxable income, as determined under G.L. c. 62. G.L. c. 62, § 4. Massachusetts nonresidents are required to make returns if their gross Massachusetts source income exceeds the lesser of $8,000 or the personal exemptions to which they are entitled. G.L. c. 62C, § 6(a). Massachusetts nonresidents are required to pay tax on their taxable Massachusetts source income. G.L. c. 62, § 5A.

The Massachusetts Indian Affairs Commission states that the Gayhead Wampanoag are the only Native American tribe within Massachusetts recognized by the federal government. The Gayhead Wampanoag reservation is located on Martha's Vineyard, and is therefore the only "Indian country" within Massachusetts. Native Americans living within Indian country are not considered residents of any state and, hence, could not be subject to tax as Massachusetts residents, absent express congressional authorization. McClanahan v. Arizona State Tax Commission, 411 U.S. 164 (1973). Thus, Native Americans living on the Gayhead Wampanoag reservation are not considered to be residents of Massachusetts and are therefore not subject to tax as Massachusetts residents. However, Native Americans living on the Gayhead Wampanoag reservation but doing business in Massachusetts are taxable as nonresidents on their Massachusetts source income. G.L. c. 62, § 5A; 830 CMR 62.5A. Native Americans living outside the Gayhead Wampanoag reservation but within Massachusetts are taxable as Massachusetts residents.

Conclusions

Native American retailers are required to register as Massachusetts sales tax vendors and maintain sales tax records. They are further required to collect Massachusetts sales tax from the purchaser upon the sale of a taxable item, unless the purchaser is a Native American and the sale occurs within Indian country. Native American retailers collecting sales tax must remit the tax collected by filing a sales tax return.

A Native American living outside Indian country but within Massachusetts is required to file a Massachusetts resident income tax return if his or her gross income exceeds $8,000. A Native American living within Indian country but doing business in Massachusetts is required to file a Massachusetts nonresident income tax return if his or her gross Massachusetts source income exceeds the lesser of $8,000 or the personal exemption to which he or she is entitled. Native Americans making returns as either residents or nonresidents must pay income tax to the extent required by Massachusetts law.

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